EU summit lays out next steps for banking union

EU leaders meeting Thursday (13 December) in Brussels have agreed to take further steps toward banking union including the political and legal minefield of common rules on winding up ailing banks while making sure the tax payer does not foot the bill.

Text agreed after the lengthy meeting says the European Commission should "in the course of 2013" make a proposal for a single resolution mechanism for all member states that are part of the newly-agreed bank supervisory system.

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It also proposes a tight timetable for agreement suggesting that MEPs and member states treat the matter as a "priority" with the "intention of adopting it during the current parliamentary cycle." Parliament breaks up for the European elections in Spring 2014.

"This will be the next important building block of our Banking Union. This will mean that taxpayers will not have to pick up the bill in the future and that the sector will pay to solve its own problems," said commission president Jose Manuel Barroso.

The agreement to push ahead come directly after member states - following marathon discussions just ahead of the summit - finalised a deal to give the European Central Bank a direct and indirect supervisory role over all eurozone banks.

The details of that deal - including how to work out relations between euro and non-euro countries - were complicated enough, but winding up or propping up banks and deciding how their outstanding bills ought to be paid is likely to imply even tougher talks.

One EU official told this website that it is likely to cement north south divisions in the EU as politicians take a hard look at where weak banks are located.

"The single resolution mechanism should be based on contributions by the financial sector itself and include appropriate and effective backstop arrangements," says the text referring to money that will be needed to plug the holes left by sick banks.

The text also speaks of the need to ensure a "fair balance" between home and host countries - mild language for a complicated issue.

The text does not say who would pay the bills upfront. Instead it says the "backstop" should be "fiscally neutral over the medium term" by ensuring that "public assistance is recouped by means of ex post levies on the financial industry."

EU council president Herman Van Rompuy said that where the public money should come from is "a matter for discussion and decision later on."

"There is not yet a proposal tabled, but it was made clear that it should not be taxpayers but rather the banks themselves, who are to clean up if a bank gets into trouble", Danish Prime Minister Helle Thorning-Schmidt said, according to Berlingske Tidende.

While the commission is to come forward with a common resolution plan, there are already two pieces of harmonising legislation in this area on the table. They set out national minimum standards for protecting depositors and dealing with failing banks. The summit text urges legislators to reach agreement by June 2013.